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They say everything's bigger in Texas, including climate change. That's why Houston is leading the energy transition. Here in H-Town, the fourth largest city in the United States, entrepreneurs from across Texas and around the world are gathering to work with titans of industry to build the technology that will reduce emissions and power a low carbon future.
Welcome to Energytech Startups with Nada Ahmed and Jason Ethier. We sit down with those change makers and wildcatters who are solving the toughest energy challenges with trillions of dollars on the line. We dig into how Houston will bring technology to market on a massive scale. Join us as we talk with the leaders of the energy capital of the world as they show us how the energy transition gets done.
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Unknown
Transform your startup journey with the energy tech nexus. Connect with fellow founders. Access critical resources and be part of a community shaping the future of energy and carbon tech. Your path to building a Thunder Lizard starts here. Learn more at Energy Tech nexus.com. Welcome back to the show. I'm here with Don Kendall at New Climate Ventures and CV.
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Unknown
Don, why don't you tell us about, what you guys do and what kind of investments you like to make. Good. Now. Happy to a great to be here. So thank you. New climate invests in innovative early stage startups building the future of how we produce, produce, power and consume. We take an active and diversified investment approach that leverages our energy, commodities, climate, technology, finance, regulatory, market access analysis and investing experience.
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Unknown
At New Climate, we partner with entrepreneurs to navigate the early stages of company develop and growth by applying our operational investment team, building and mentoring experience, and providing access to our global network of investors, startups and corporations to help founders achieve success. Oh thank you. And and if I recall, you guys were on fund one. Since Covid, I think is around the time that I first met, the firm, and, you're at the phase now where, I assume you're raising fund to or is there a new thesis that's coming along?
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Unknown
Yeah, we're we're still have money left to invest and fund one we've reserved reserve money for follow on investments. But clearly we're at the time we're focusing on what's the next step. Yeah. And as you're probably aware, the environment thanks in part to administration. Yeah. When we got started we had tailwinds. We now have headwinds. We still think the opportunities are there.
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Unknown
This is a very, very long term thesis. And the whole energy transition which will be measured in multi trillions is going to take a long, long time. But but and we've never done things that are and in fact based on subsidies subsidies can help. But we would not invest in a company were the only way they're going to survive is with subsidies.
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Unknown
But still it's a different environment than we had before, which, you know, not that our underwriting wasn't super diligent, super deep previously, but it's in some ways it's has to be even more focused, just given that there's certain areas that are very, very problematic. Yeah. I guess as, you know, portfolio builder, I definitely understand that the business needs to have its own fundamentals and needs to work.
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Unknown
But when you have headwinds, you know, you get your capital back faster, right? And it it does that change the conversation? With LPs in terms of like who they want to fund or are they coming in because they're kind of just committed to the vertical? Now, I think it probably does change the conversation a bit and does sort of change sort of stage of company to a certain extent.
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Unknown
But as an example, we've always been, you know, a lot of people are calling it picks and shovels. So we for example like picks and shovels business where you're doing things that you know, enhance existing businesses. For example take solar energy or wind energy, we would probably not finance a developer of solar wind. There's a lot of people out there, a lot of people doing it.
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Unknown
Crowded space take EVs. We wouldn't finance a startup of EVs. It's just too crowded a space, too much competition. But things that can enhance battery performance, things that, you know, we actually have a company that's working on a new technology to enhance the efficiency of solar panels. So things around the edges that can dramatically help those companies are right in our target space is that does that because the when you say it's crowded, those markets are sort of mature already.
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Unknown
And harder to make a profit. And part of it too is just capital intensity. Like a developer in solar or wind, there's a lot of people out there, a lot of people doing it, a lot of infrastructure funds, and we just don't have the capital to make a big difference for those companies. Plus, as you said, they are more mature.
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Unknown
So the returns in project financing are attractive but they're not venture capital returns and EVs. Same thing. The amount of capital to build a company in the EV business is huge. There's been tons of failures, a handful of monstrous successes. But yeah, we don't see, you know, we being the ones to finance a new startup in EV space.
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Unknown
But if we can enhance battery performance, do something that impacts the use of carbon fiber, other things around the EV, you know, could well fit. Yeah, that when I was, thinking about how, a thesis evolves, I was, I think one of the questions entrepreneurs always have is how much do we lean into a trend?
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Unknown
How much should we reframe ourselves as like a data center company or services market? And it's it's a challenge because as a as a coach of founders, you want them to be genuine to their business. You want them to actually, like, understand a customer and service a need and not just chase, a buzzword. But you can't ignore the fact that a lot of capital is going into, that space.
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Unknown
And so when you look at companies, how do you, figure out who's authentically targeting a problem? And how do you know this? You know, something's real, you know, excellent question. Obviously, we don't want to be funding trends. Yeah, but certain trends are going to be here a long time. Yeah. And what we want to be doing is making sure the companies we're focused on really have long term viability.
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Unknown
I mean, take your data center, huge amount of money going into it. I just listened to a Jefferies, you know, conference call yesterday. And how many announced data centers are not going to get built. So it's an area where everybody's trying to do it a lot of them won't get done, but but even there, yeah, we've got companies, for example, that are focused on improving heating, air conditioning, ventilation, one of the biggest issues with data centers is how you chill.
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Unknown
In effect, the whole process, whether it's air cooled or water cooled. So again, improving technologies that can help the data center is something we take a look at. Would we do a data center development for our fund. It just again doesn't it doesn't take too much capital. Yeah. But I guess I'll, I'll try a little further.
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Unknown
We did a, our pilot a thon in September, and it was amazing to me, I want to say like 40 or 50% of the companies that came to presents were they're all early stage, very early stage technology companies. And it felt like a large portion of them were trying to like, rent their, their products and business model around trying to provide power to, data centers and as, I don't know, unsophisticated reviewer.
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Unknown
It was hard for me to tell if that was just chasing, you know, chasing a problem. So to speak. Do you find that, a challenge when you when companies approach you that they're trying to chase something they're not really an expert in? Or is is there a filter you apply? Yeah. Clearly, when we're evaluating, you know, companies management is key.
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Unknown
And there are a lot of people chasing trends and they don't necessarily have the expertise in data centers. What's interesting probably as recently as nine months ago. Yeah, the Monster Data Center users wouldn't really talk to projects that didn't have grid based power. That's changed, as you probably seen a lot of political commentary on our data centers increase in the cost of power for everybody else.
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Unknown
So the data centers are being more sensitive, and more and more are looking at what's called really behind the fence type project. Soon, in effect, you self generate and there's just tons of opportunities there. Yeah. And as you've also probably read, you can't get the big GE turbines timely. Yeah. Yeah. So you're looking at lots of alternatives to get things started and then potentially put in a combined cycle.
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Unknown
Turbines make the most sense for data centers in my view, because you also have steam being provided which you can use for in effect powering the chilling. So you've got one use of fuel that produces both electricity and helps in effect run the chillers. Whereas just using you know, either you know batteries, using fuel cells, using others, you still need to come up with a way to power the chillers.
00:08:27:07 - 00:08:56:21
Unknown
Yeah. Interesting. Yeah. The cooling and I guess as the the systems get denser, the heat probably gets more intense. All right. What is interesting though, I'm working, you know, with a data center helping them on the side. And they're working with a customer. Can't disclose her name yet. That has much more efficient chips than Nvidia. And so if that's true, they'll be able to have, in effect, more density, but not use more power and more chilling.
00:08:56:23 - 00:09:20:19
Unknown
Interesting, right? I think, in a time like today, you know, we're we're like three weeks into the, war in Iran and we're a week ahead of, of, week. And I think the, the top question that all of us had going into just the beginning of the year was where people deploying capital today, we know it's data centers, but what else are people doing for an investment strategy.
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Unknown
And and here today, I think not even today, I think I saw oil across 110 barrel, dollars a barrel at the beginning of the week. That changes everything in terms of how people were thinking of deploying capital. You know, as a, as a fund manager who has to think about a portfolio that needs start, you know, last and bill value over ten years.
00:09:41:00 - 00:10:01:04
Unknown
How does that structure your thinking today? Yeah. Now clearly, you know, I think the whole war was unexpected. I think, you know, obviously what's happened with oil and the whole oil environment was not expected. And like I think Goldman just came out with the report that we're going to be into the $100 barrel of oil through 2027. Yeah.
00:10:01:09 - 00:10:26:11
Unknown
And everyone was predicting $55 a barrel in January. I've had my ear to the ground with the energy company. I'd say from a global perspective, the biggest thing that's done is cause countries, Europe in particular, but probably even Asia that are very, very reliant on fossil fuels to say we really need to be more energy independent. And that could well be a big increase in renewables in countries where renewables make sense.
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Unknown
So I do think in some ways the unintended consequences will be of a refocusing. You know, on alternative sources of electricity in particular, energy in general. So again, we don't think, you know, you want to make investments based on $100 oil for the next ten years. Yeah, I mean, I do expect that to go back to more normal level.
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Unknown
But I mean, for our companies, what we're looking at, we have one company that basically is using animal materials to make substitutes for plastics or leather. And obviously plastics generally coming out of the petrochemical process so that, you know, for them, this is a nice potential tailwind. If it's an effect alternative, you know, sources of plastics are more expensive.
00:11:14:12 - 00:11:39:03
Unknown
This gives them a pretty interesting opportunity. We're also looking I'll call it broadly defined. You know, recycling. We we have a company that is taking they call it red mud. But the waste product coming out of making aluminum. And for every tonne of aluminum you have two tons of the red mud. And it's just been sitting and holding tanks, hazardous waste, big, big issue over time for these companies.
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Unknown
It has in it a lot of iron ore, some titanium, some aluminum in some rare earths. And so this company's processing that to extract in effect those materials out of it, and they end up turning the two tons into 20% of what I'll call waste, that generally is not going to be hazardous. So that, you know, it really is economically attractive because they're taking out valuable materials from the waste, but to then also effectively disposing of a hazardous, you know, waste pond, in effect.
00:12:10:09 - 00:12:34:06
Unknown
So we like opportunities there. And, you know, those are going to, I think continue to grow. Yeah. We have another company that recycles carbon fiber. And same thing. Carbon fiber manufacturing is very, very energy intense. And a lot of the underlying customers, you know, want the carbon fiber to be recycled. So we're really looking, I'll call it around the edges for things that get exciting.
00:12:34:06 - 00:12:56:22
Unknown
I already mentioned in, you know, solar, we have a company that's, you know, working on improving the efficiency of solar panels. And then in the picks and shovels, we have companies that help with measuring carbon or things like that. Another company that's really helping developers decide whether sites are attractive for a power project, a data center, or other opportunities like that.
00:12:57:03 - 00:13:21:18
Unknown
Yeah. Interesting. It it makes me, think, especially when you talk about downstream processes from, from oil. It's not just the fuel we put in our car. It's all these, chemicals, advanced materials that are that require kind of an upstream fuel source. They're going to get more expensive. And especially, you know, petroleum alternatives.
00:13:21:20 - 00:13:51:23
Unknown
It's challenging to know if customers will actually pay for sustainability. Previously, and I think in the last year or so, a lot of the carbon initiatives we saw really, I don't I don't know if they evaporated from, you know, the business plan, but they definitely evaporated from the conversation. And it wasn't enough to say we had, an alternative to, carbon because the price premium just wasn't very substantial.
00:13:52:01 - 00:14:13:08
Unknown
And a lot of, I think a lot of companies were trying to figure out how do we make stuff that cost parity with the petroleum product. Well, in the short term, that that calculus has changed. And I think I was looking at one of your companies, are you okay with me naming? Yeah. So, like, I mean, so I was looking at air company, loved what they were doing a few years ago.
00:14:13:08 - 00:14:43:02
Unknown
I think they, did a carbon value program, if I remember correctly, they were originally making, like, alcohol or perfume. It was actually vodka. Vodka. Okay. That's right. It was alcohol. And and then we switched during Covid to hand sanitizer. Yes. And now the focus is much more for heavily on fuels. Yeah. And so is was that switch a long time coming or was what what shifted in the ecosystem instead of we're going to do I assume is it SAS or is it some sort of or is it any sort of diesel?
00:14:43:04 - 00:15:13:00
Unknown
This is, you know, more diesel related. Another company vase dimensional energy clearly use early on focus was Saff okay. And what's interesting though they've also found out that waxes that can be used in cosmetics and other things, a lot of those are petroleum based. Yeah. Like paraffin. Petroleum jelly. Yeah. Right. Yeah, exactly. So that in addition to Saff, yeah, they're also focused on, you know, other products that are replacing, you know, petroleum based products.
00:15:13:02 - 00:15:36:23
Unknown
I see companies like that, you know, again, it's back to having some tailwinds. We thought they'd get there eventually. And back to your earlier point, all the airlines want to use sustainable aviation fuel. And right now, clearly it's not as economic as jet fuel. But if you blend in a very small amount, it doesn't really impact the overall cost of fuel.
00:15:37:01 - 00:15:58:20
Unknown
And what we think that'll help is, is we keep increasing the size of our projects at the underlying companies. So we're trying to do is I want to get production up and getting fuel costs down. And as that gets there, we'll hopefully get to parity with jet fuel. It's cool. It will take a while as we keep, you know, improving the whole efficiency of the process.
00:15:58:22 - 00:16:27:13
Unknown
But well, the good news is the airlines will buy, you know, reasonable quantities of it even when it's more expensive long term. We don't think that companies survive without parity. But, you know, fortunately there's really a bridge to get there by all the major companies wanting to see it happen. And they're willing to to try it. Lower quantities, make sure it works, make sure it doesn't do anything, the engine, which woman, etc., etc. to to really get the companies rolling.
00:16:27:15 - 00:16:52:16
Unknown
Yeah, I'm, very curious. And I know you're very passionate about about climate and, preservation of kind of, our ecosystem. But, you know, you have the title Venture capitalist, right. And, and when we think about, kind of capitalism, it's always about getting the best price for your dollar at the most economics. And, and when you come in with a sustainable aviation fuel, you know, you have to kind of say it's the same product.
00:16:52:18 - 00:17:17:11
Unknown
We have this thing that's less carbon intensive, but I'm going to charge you twice as much for it. And I think it's, unfair to say a capitalist would take that deal. Right. And, and when when you're coaching these entrepreneurs and kind of selling this, this higher price product, how do you how do you help them, you know, sell this thing that that just economically has an like an ephemeral value?
00:17:17:11 - 00:17:38:02
Unknown
Almost. No, it's a great question. Again, as I said, if we don't think they can get to parity, we won't make the investment. So that we really are looking for technologies where as you scale it up, because obviously the bigger the size of your project that's processing it, generally the unit cost of your ultimate product is going down.
00:17:38:04 - 00:18:06:19
Unknown
So and same thing, your inputs, you know, if you're buying lab scale inputs, you know you tend to pay a lot more. If you're buying commercial quantity inputs you can negotiate better pricing. So it's really a function of getting your input costs down, getting your efficiency of the plant up. And then obviously, you know, getting the overall cost materials down so that we really won't do a company where they need a premium to be successful.
00:18:06:21 - 00:18:26:13
Unknown
Now, it may well be the market will pay them a premium and is capitalist. We're happy to have them, you know, take advantage of that. But over time, if we don't believe they can get to cost parity in just the US won't be a viable business. Do you think customers have that same lens, like when they're doing diligence on on this very small.
00:18:26:14 - 00:18:51:13
Unknown
As I said, we've seen it with the major airlines. They're willing to pay a higher price than jet fuel to get the product and be able to tell customers they're using sustainable aviation fuel. But it's clear I don't think they'll do that forever. They have the same goal is by helping these companies grow and get started. You know, they'll be able to get the efficiency to get the costs down.
00:18:51:15 - 00:19:10:07
Unknown
Do you feel like they're doing the same level of diligence as you are or more or less, or are you a signal for them? Yeah, in a probably almost viewed both ways. You know, in some of these projects, we have major airlines as investors and some of them would like to buy all the fuel our companies can produce forever.
00:19:10:09 - 00:19:35:10
Unknown
And obviously, you know, we'll work on what will help us make that mutually beneficial. So for example, them helping us project finance the next bigger project. So there are ways to keep them involved. But I do think the airlines do a lot of due diligence. They're looking at a lot of sources. You know, they aren't going to just invest in one company or one particular type of technology.
00:19:35:12 - 00:19:53:11
Unknown
They're going to spread their bets till they know they work. And obviously there may be some they believe in more as they learn more about the process, and they may increase their bets on the ones they really like and cut back or eliminate, you know, the investments on the one side, they don't think you're going to be able to get there.
00:19:53:13 - 00:20:17:03
Unknown
Interesting. We have to spend too much more time on airlines, but I know they, they usually buy jet fuel on a spot market, so they're really exposed to the swings on on, oil. Does finding alternative sources help them reduce volatility, or is that still kind of marked to. I mean, as the price of Saft comes down, I think it will help with volatility.
00:20:17:05 - 00:20:39:22
Unknown
And you know some of the airlines do hedge. And you've seen over time some have made huge profits hedging and huge losses hedging. And so it's a tough tough process for them. And you know but you're right historically they pretty much bought spark spot spot. And that creates a lot of swings in their own. Yeah. In effect revenue.
00:20:40:04 - 00:21:07:07
Unknown
Yeah. I got to buy flights for our, spring travel. And I'm kicking myself for not buying them. Three weeks ago because I'm sure I'm going to pay for it. Know they definitely will pass through the increases in fuel cost quickly. Yeah. So, I'm curious what what really, oh, I alluded to earlier, which really drawn you to, have a career in, in kind of climate investing generally because I know you've done more before, even new climate ventures.
00:21:07:12 - 00:21:31:00
Unknown
Yeah, just going backwards. I mean, I started out in investment banking, and relatively early on was asked to specialize in project financing, leasing, structured finance, and where I was fortunate, a lot of that was at the time the whole U.S. power industry was deregulating. So an awful lot of the work I did, again, focused heavy capital assets, every industry.
00:21:31:00 - 00:22:00:00
Unknown
So autos, airlines, shipping, railroads, steel, so everything heavy, capital intense. But really the biggest sector ended up being the electrical power industry. So got involved early in coal fired plants, nuclear plants, natural gas and then into the newer technologies. So I actually financed the first geothermal project that didn't have an oil company guaranteeing that the reserve was there.
00:22:00:02 - 00:22:25:22
Unknown
And interest enough. That was the predecessor company to what is now Berkshire Hathaway Energy. Yeah. So it's inside of Berkshire Hathaway today and financed early wind projects, early solar projects. Yeah. One of the earlier types of of energy storage called pumped storage. So basically a big reservoir, ideally a big reservoir here and another one down here. And we needed to power open the floodgates.
00:22:25:22 - 00:22:48:03
Unknown
And you produce power at night when power is cheap, you pump the power back up to the reservoir. So really get access to all the different types. Using wind as an example, a lot of the early wind projects and you could go 20 years ago along some of the areas in California, you'd see 80% of more moving. And so they were trying new technologies.
00:22:48:03 - 00:23:13:13
Unknown
None of them just didn't work. But I got really intrigued by the opportunity with free fuel. Yeah. Whether it's wind or solar or relatively cheap fuel with geothermal or and I do called nuclear renewable. I mean, obviously the issues are more waste disposal than anything else. And in effect, having in effect environmentally friendly type of fuels that are very, very economic.
00:23:13:15 - 00:23:32:19
Unknown
So I really got intrigued with that. You know, plus I have kids and I have a granddaughter. So I mean, being sustainable and making sure the world is here for them, 30, 40, 50, 100 years from now was was important to me. So really got excited about what was going on. You know, in the whole space. I also was fortunate.
00:23:32:19 - 00:23:58:05
Unknown
I was asked early on to be a board member at Solar City. And that's one of the early residential solar companies where we added unique value. One was trying to change processes. For example, initially we would put every, you know, in effect, small solar power plant on somebody's roof piece by piece. We then saw a company that was doing it on a modular basis.
00:23:58:07 - 00:24:38:12
Unknown
Everything was assembled on the ground, and then you put the modular up on the roof so we could go with that technology. We could go from doing, in effect for days for one project to two projects a day. So dramatic increase in efficiency and decrease in labor cost. And another thing we did was financial engineering. You know, we were if you went and tried to sell somebody solar for their house and say the payback was ten years and you've got a pretty hefty capital investment, even though they may want to do it, the ten year, you know, return of your capital just wasn't exciting for a lot of people to to do it.
00:24:38:14 - 00:25:02:03
Unknown
If we went to and said, okay, you're paying Y for power now, it's going to inflate it. Yeah, whatever you think natural gas or coal or whatever is inflating it, or we'll put a solar unit on your house. We'll give you a 15% discount off what you're currently paying, and we'll just inflate with inflation. And so when you looked at that, no money down.
00:25:02:05 - 00:25:20:16
Unknown
Yeah. I think that the immediate savings and what we ended up doing is obviously that required us to have tons of capital, because we were financing our customers. And what we decided to do was go to the securitization market. It took a while to get the rating agencies comfortable with it, but when you think of it, what are you going to pay first?
00:25:20:16 - 00:25:43:06
Unknown
Your home mortgage, your car loan, your electric bill? Yeah. And if we cut you off, you're going to pay more for your electricity. Yeah. So you could really make strong arguments that your electric bill is at least tied with your car payment in your home pay. And so we're able to get securitization done, which dramatically, you know, impacted our capital raising interest.
00:25:43:06 - 00:26:13:23
Unknown
Just using that as an example. Yeah. Are you ready to lead the decarbonization charge? Energy Tech Nexus is your platform for growth, offering unique resources and expertise for energy and carbon tech founders. Join us at energy Tech nexus.com and start building your Thunder Lizard. I think going back, you know, just, or just to bring my own experience into this, I had the opportunity to, to start my career, in the, early 20 tens.
00:26:14:00 - 00:26:50:13
Unknown
And the kind of recommendation that was told me was, don't say you're building a clean, clean tech company because I said, come off the, I think failures of a bunch of big, climate companies and a lot of challenges. But before the exits of Tesla and SolarCity and others and, you know, as someone who's heard kind of the the legends of all these technologies that were tried and failed, I'm very curious if the risk appetite was better or worse than it is today in terms of like getting these big projects off the ground, or if there's just something different in the way projects get funded.
00:26:50:15 - 00:27:09:05
Unknown
Because it sounds it feels like just someone growing up in the space, there were a lot of these, like, high stakes, companies that, with very risky technology that that got a lot of capital. And it is a very common, question for Founders Day of like, how did that one get funded? And I can't do mine's better.
00:27:09:07 - 00:27:37:14
Unknown
Right. And I don't know how we square that because we, we honestly don't have the, the, the lens of history and being there. And so I'm just curious, like what your senses know. It's it's a great example, but every first of a kind project is more difficult to get financing. I'd mentioned the geothermal project, for example. Historically, the banks, the insurance companies, all the lenders would not take the risks that the geothermal would keep producing.
00:27:37:16 - 00:28:15:11
Unknown
And we were able to show lots of studies. I mean, there's a project that's probably at least 125 years old in Iceland that's been producing geothermal continuously. So the more data we had, we could show the banks that, you know, basically, if you poke a hole in the ground in the right place, it will produce steam. If it gets gunked up, you can poke a hole similar without a ton of extra capital costs so that we get people comfortable at one, the resource was there, and number two, that you could actually keep using that resource over extended periods of time.
00:28:15:12 - 00:28:39:17
Unknown
And then once that first project gets financed and works, obviously all the follow on projects are much easier. But but clearly the most difficult thing is getting people comfortable and then what you want to be able to do, I mean, example is, you know, the geothermal company, you know, here in town, they're using basically oil and gas techniques, you know, going very, very deep.
00:28:39:19 - 00:29:04:07
Unknown
They just announced they got project financed debt on their first. Yeah I saw that this week. Yeah. Yeah. And so to me I think what happens there is the banks that are involved in it have had experience with oil and gas financing, probably have experience with other geothermal financing. And they look at where are the similarities and what's worked and then what could cause this not to work.
00:29:04:09 - 00:29:25:10
Unknown
The difference here versus typical geothermal. Obviously the holes are a lot deeper. So I think your capital cost is going to be higher if you have to do replacement wells, but so it shouldn't be a big technology risk. So it's just basically once you're comfortable all of the technology risk has been you know basically I'll call it ring fenced.
00:29:25:12 - 00:29:46:00
Unknown
So it's not a big problem for you. You can get comfortable with the project financing. But you're right it it's really tough to sort of figure out you know why company A that's interesting gets financed. And company B that may seem equally interested doesn't part of it I think is is management teams. And I hate saying that to criticize people who don't get finance.
00:29:46:02 - 00:30:17:20
Unknown
But, you know, for a while, almost everything in the space, if it wasn't something that Elon Musk started, it didn't succeed. So you had a lot of venture capital firms 20 years ago that got in early, thought there'd be great tailwinds in terms of being successful with the sector and the it was too early. And I do think now, even though we have governmental, you know, headwinds, I do think the opportunity is there and people see the long term vision of of what they can do.
00:30:17:21 - 00:30:41:01
Unknown
You've had enough successes, but still every new EV company thinks they're different and better, but you're still going to have, I think, a lot of failures in that space. Yeah. No. So in some ways it is easier because people have history now to look at. And, we also have more competition because there's a lot more companies wanting to go out and can build something.
00:30:41:03 - 00:30:59:12
Unknown
And it's, I think we're living in a good time, honestly. Yeah. Because it feels like it was a much more challenging. Yeah. Because you really were doing a first of everything. Yeah. You and project financing to me. I always boiled it down to three simple things. What are your inputs? What are your outputs?
00:30:59:12 - 00:31:22:21
Unknown
And you need to make sure that, you know, your cost of processing means you can make a decent margin. But then the bigger thing is, whatever you're using doesn't work. So that technology risk. And that's where the first and kind is problematic. So and it's also why a lot of people start with a smaller scale. So we can show you that the technology works.
00:31:22:23 - 00:31:47:02
Unknown
What we can't just show you can we up it by 5000 times? And it still works at scale. And we can drive the cost down as much as we need to to make it work. So if you look at a lot of the companies will invest in like that, we won't do just a science project. Yeah. We want to make sure it it actually does work even though it's not commercial scale.
00:31:47:04 - 00:32:08:21
Unknown
But then we're making the bet that it can be commercialized. Yeah. Which means scale up to commercial scale, scale down cost to make it economic. And and I guess let's, let's delve into that. Like what are you looking at to get confidence. Is it, visit the management team. How deep are you getting on the technology? And I don't know how to say this.
00:32:08:23 - 00:32:33:22
Unknown
How much do you trust the entrepreneur? Great question. It's really all the above. I, I've found from my experience and really everything. Yeah, the most important thing ends up being the team. Yeah. Because you can have many, many companies. You hit a roadblock. And if you don't have the right team, they just give up. If you have the right team, they'll find a way to work around the roadblock.
00:32:33:22 - 00:32:57:00
Unknown
I mean, good example for me was just, you know, I moved to Houston to work with Bob McNair as president of his power company. And Bob was just phenomenally persistent in terms of getting things done. And we had a monster contract working on with Conrad. And, you know, they had a five year contract that was a standard contract and a 25 year.
00:32:57:02 - 00:33:20:13
Unknown
You really can't finance a power plant with a five year contract. The five year contract was great. The 25 year contract, the economics weren't very attractive. So we signed a ton of five year contracts with the hope that kind of would come back and say, what are you doing with five year contracts? And kind of came back and saying, we want your project, but we really have a problem with the five year contract.
00:33:20:13 - 00:33:43:13
Unknown
And I said, well, we think power prices are going up significantly, so we'll have the five year contract. And kind of so what can we do to get you a long term contract? But we said standard offer for 25 doesn't work. But you're the customer. Let's see if we can work something out. So we worked out a transaction lower than the five year but way, way higher than the standard offer at 25.
00:33:43:13 - 00:34:06:15
Unknown
That was phenomenally economic. And we actually were able to get it financed at 150% of the capital cost for what does that mean. So basically the power plant cost around half a billion. We financed it for 750 million. Okay. So the day we started production, we pulled out a $250 million development fees. Simple way to look at interesting.
00:34:06:15 - 00:34:31:12
Unknown
And it still had nice margins. You know, after serving the 750. So again, there to me we were using standard technologies and we clearly had a great team in terms of doing all the development work, the permitting, the things you need to do to make it work. We made sure the inputs, you know, natural gas primarily at this point and the outputs electricity matched.
00:34:31:12 - 00:34:54:00
Unknown
So we had a nice margin. But a lot of that happened because we had a unique management team that was very persistent, very effective in basically developing the project. I'm still stuck on 150% of, of value against the project. I guess. Well, the thing is, I think of it because ownership, everyone has to get paid, including the development team.
00:34:54:00 - 00:35:11:15
Unknown
Yeah. And that's a mechanism to, to pay for your, your I one through three. Right. Is that is that the way to think about it. Yeah. But but it's unusual. I mean, I've seen very few projects that you can pull out. 50% of the capital cost is a profit before you've really started making struggling. Yeah. Or running.
00:35:11:15 - 00:35:31:06
Unknown
Yeah. Yeah, yeah. They wouldn't pay it to us until the project was up and running. It's understandable we didn't do it. The day we. We started construction. Yeah, but I guess it speaks in back to your other questions. I mean, so we'll do a lot of deep digging and the experience of the management team. What have they done before, you know, what is their expertise?
00:35:31:12 - 00:35:53:17
Unknown
What does the company need to grow and be successful. And then on technology, you know, well if need be we'll hire outsiders or partner like what we love going in with strategic because they tend to often have the technological skills that we need to outsource. So I mean but we do want to dig deep into does the technology work.
00:35:53:18 - 00:36:15:00
Unknown
And as I said what we're trying to do is we don't want to take the risks. The technology isn't going to work. What we're taking the risk of is can you scale it and commercialize it. Yeah. Yeah. So we need the plan and the vision to scale and commercialize, because generally if you're at that stage where they're going to scale and commercialize, it's probably not venture capital.
00:36:15:04 - 00:36:37:07
Unknown
Yeah, yeah. Do you, do you find a team? And I know every team's different. Do you find the team needs to have been together a long time, or are you really looking for. Well, what, like what? An ideal team. Looking at it is clearly helpful if the team has had some experience together. Because, as you know from your own businesses, interpersonal interactions are very critical.
00:36:37:09 - 00:36:56:03
Unknown
And you want to make sure they're not all clones. You want to make sure this diversity of skill set, diversity of way of looking at things and then also so they'll listen to each other. So if, if, you know, I, I do tend to think the, you know, community is a group is smarter than the individual.
00:36:56:05 - 00:37:20:21
Unknown
And so I think it's very, very critical to have, you know, you know, people that can work together, listen, learn from each other, fix other's mistakes. But so clearly having had a team that worked together is helpful. And at least knowing each other for a while is helpful. But you know it's not necessarily definitive. We can come up with a team that hasn't worked that long together.
00:37:20:23 - 00:37:49:17
Unknown
They put the right people together and they can still make it work, especially if you have a gap that you need to fill. You got to bring in some new blood sometimes. Yeah. Let's see. Okay, here we go. Sorry. I'm trying to remember. Remember, what we usually ask. I think one of the the challenges you've been seeing, in, in the market from, like an investor perspective is, a lot of funds got started right after Covid.
00:37:49:17 - 00:38:09:03
Unknown
I think there's like a, there's a lot of capital, honestly, that that came into the system. And, and just as, an observer, it feels like a lot of, early stage venture funds are not able to raise fund two or fund three. And even those who have, you know, prior vintages are, raising smaller amounts of capital.
00:38:09:05 - 00:38:31:06
Unknown
And, I think as a, as a founder, it's hard to understand what's going on or why. And, and on the one hand, I'm, I'm hoping you can give us some insight into why there's just this long cycle where maybe there's less capital coming into venture, but also, how we should view that as, like we plan our own financing.
00:38:31:09 - 00:38:58:00
Unknown
Yeah, yeah, yeah, it's it's another very, very good question. And you've probably seen there's been lots of articles recently on the whole alternative investing sector underperforming what people's views were. Okay. So there's been multiple articles on university endowments. There's just one I saw this week on 3 or 4 of the mixed or Canadian pension plans. Yeah. Basically having negative returns in their private equity portfolio okay.
00:38:58:01 - 00:39:23:17
Unknown
So that obviously impacts capital allocation to the sectors. I tend to be a believer when things are crummy, it's often a good time to get in. Yeah. Because you'll you'll hopefully be on the up cycle. But but in the venture side you know clearly and again from my analysis of venture from when I ran a family office historically the top, top venture firms tend to keep doing pretty good.
00:39:23:18 - 00:39:53:14
Unknown
Yeah. And there hasn't been as much correlation of, you know, mediocre venture funds improving. And so that it did really say that in venture, if you were an index fund, you wouldn't do very well. You really need to be in the top funds. I think that will probably continue persisting there for a while. Was a lot of capital helping new funds start because it was good data historically, both in private equity bid and venture that the earlier funds often do better.
00:39:53:16 - 00:40:21:14
Unknown
Yeah. I.e. the founders need to make it work. Well, yeah. To be able to do fund two, three, etc. and I just think it's gotten more difficult, you know, in part differentiating, but then in part the types of capital. Yeah, there's still high net worth investors that are doing venture. There's still pension plans are still others. But what's happened because of said the overall returns.
00:40:21:16 - 00:40:49:04
Unknown
A lot of them were focusing on fewer fewer relationships and bigger and bigger relationships. So getting into the institutional capital I think has become, you know, somewhat more difficult. So they themselves are, concentrating, where they put capital on it. I don't think they're related, but it seems like a lot of the, venture investments also went into bigger deals and, and, less companies.
00:40:49:04 - 00:41:11:13
Unknown
And in the last year, I suspect that's more to do with geopolitics of just making sure your good companies are well funded. Yeah, but but part of it to me, though, is with the AI cycle. You're seeing, I think, a lot more focus and excitement on AI and robotics, so that those areas I think are still able to raise capital when everybody's sort of changing.
00:41:11:13 - 00:41:34:20
Unknown
I mean, most of our companies use AI, but we're not an AI fund. Yeah. And so but you are seeing people sort of shift to say, yeah, we really are a AI focused. And you might have seen I think it's just in the paper today. But Jeff Bezos is out trying to raise a $100 billion fund to basically acquire manufacturing companies to improve their operations by using AI.
00:41:34:20 - 00:42:02:00
Unknown
I do not see that. I'm not surprised because I saw he was he's been working, on this, six months ago. I'm so I guess, the question I want to ask is, if people are kind of going over here to AI, why is now the time to continue to invest in climate? And you mentioned maybe because we're in a down cycle, but, but, you know, I guess what's the, I don't know if this is the sales pitch to the LP is why why, why should they put the capital, generally in our sector?
00:42:02:06 - 00:42:32:17
Unknown
Yeah. No. Yeah. I think part of it is I said the energy transition is still at early stages, and I think it is going to continue being multi-trillion dollar opportunity, as we keep moving in that direction. And so I think that we're still at the early stages, and there's going to be many, many companies that can break out and do phenomenally well, whether it's sustainable aviation, fuel, it is things like, you know, finding ways to in effect do where rare minerals.
00:42:32:18 - 00:42:56:22
Unknown
Yeah. For example. And you know, we also have companies that are using, you know, CO2 or others to process other materials and sustainable aviation fuel. So there's a lot of ways to, in effect, create new products, new efficient products at lower cost. And that's a key. Again, I don't think we can assume people will pay a premium just because it's a product that's helping the client.
00:42:57:00 - 00:43:17:07
Unknown
So it's it's got to be competitive as is. But I think there's so many opportunities in that the space in general that I'm I'm still very excited. Yeah. I think when, New Climate Ventures, started a few years back, Houston was still developing as a hub for climate and energy. And since that time, I think a lot of things have been put on map.
00:43:17:07 - 00:43:41:22
Unknown
The map. The island got started. Greentown labs is here. We even have a climate week now. What role do you think Houston's the plays in terms of that, deployment of capital for for venture capital and the energy transition? No, I mean, clearly where Houston should be able to differentiate itself. And and I've worked with both Great Houston's partnership and committees for probably a few decades now.
00:43:41:22 - 00:44:02:15
Unknown
And how do we get Houston to where it should be, you know, as the energy cap of the world? How do we transition, transition to continue to be the energy in the world? And I do think we're doing a lot of things right. I mean, the good news is we do have a lot of the major energy companies here already that also brings tons of skill sets here.
00:44:02:17 - 00:44:29:07
Unknown
So, you know, for example, you mentioned do we move companies here? One of our companies was New York based. They were looking at San Diego, and Houston is where to move the company. They needed technical people with chemistry and other technical backgrounds. The founders a surfer. So I was amazed he picked Houston over San Diego. Although he does still surf in Galveston Bay.
00:44:29:07 - 00:44:55:22
Unknown
Yeah, and basically the reason he picked Houston was very much the fact that he could get more technical people that he needed to hire here than he could in San Diego. And so I do think when companies are looking at starting here or staying here, just the quality of the educational institutions we have, the people that are here are ready, you know, that have technical backgrounds that can help.
00:44:56:00 - 00:45:26:00
Unknown
And Houston's always been a city that makes things, it is supposed to, you know, other cities that are a financial center or, you know, services focus. So that the fact that we make things really, I think, does make it easier for companies to be here. And I do think we're getting more and better support, too, from what I would call, you know, the government, both at the state level and at the city, county level, to really focus on the opportunities that are here.
00:45:26:02 - 00:45:48:08
Unknown
And I think a lot of it is a messaging issue like Pattern Energy may not have heard of one of the big renewable companies. It's been San Francisco headquartered for a long time, but it's had it was sort of co-founded by people in Houston. It's had more employees in Houston or I shouldn't say used Houston in Texas than it has in in California.
00:45:48:10 - 00:46:10:06
Unknown
So a lot of just messaging, you know, we're viewed is old fossil fuel. But the transition into the newer technologies has been pretty dramatic. Yeah. Do you do you find, companies here in Houston that are that fit the portfolio? Yeah, we do look globally, but we do find companies here as well. I mean, we've been very excited.
00:46:10:06 - 00:46:33:11
Unknown
I've been involved in the rice business plant competition since it started. I have been a judge forever. Yeah. And it does. Yeah. Yeah. You know that that I think is really helped the ecosystem here. And a lot of I think it's 40 probably 42 different universities are participating. And a lot of those founders are seeing that there is a real community here.
00:46:33:12 - 00:47:01:22
Unknown
I do think a lot of the other aspects, you know, and I think is continue to improve, get better. Your firm is a lot of groups focusing on energy and industry and transition here now. And so are we are we need to be not. Yeah. You know, a lot of it's continuing to get more service providers in terms of venture firms, the law firms, etc., but we've really have improved dramatically, probably since, you know, New Climate Ventures has been founded.
00:47:01:22 - 00:47:30:15
Unknown
But clearly since since I was came here 30 plus years ago, I think one of the struggles we have is we do have a good, cohort of startups that are here that are coming out of programs like rice. And, and obviously there's a Houston Angel network, that's supporting we have sworn now in town, but it's it's unclear that, the, the crop of climate startups, can raise the rounds.
00:47:30:15 - 00:47:47:03
Unknown
They need to get to that next stage. I think typically a seed round for a climate startup needs to sit between a million and $2 million, especially if you're building hard tech. And and my unfortunate advice sometimes is you have to go to California, you have to go to New York. And and the question is, why aren't weren't there more investors here?
00:47:47:08 - 00:48:14:14
Unknown
And, I think that's not a, supply problem. I think there's plenty of capital in Houston. My concern is, maybe the startups still need to have, I guess, more maturity or more support to get to the stage where, the, the local capital will, will invest in them. And, that might be a controversial opinion, but I think that that's a realistic assessment of kind of the quality companies we have here.
00:48:14:16 - 00:48:31:19
Unknown
And, and I if I had to put a guess on it, I think there's like 2 to 4 startups in climate energy that come from Houston in the greater, you know, area, who will probably raise, a meaningful, seed round. And I think you guys did one of the investments last year and, solid tech that was that was one of the one of the two I would have picked.
00:48:31:19 - 00:48:53:02
Unknown
Yeah. I guess do you agree or disagree with my assessment that that's that's kind of the limitation for or they're straight on, on why they're not more companies getting funded locally. It's still an issue. But I do think that issue unfortunately now with this environment is, you know, almost everywhere. Yeah. Okay. So it's not just a Houston problem.
00:48:53:02 - 00:49:13:09
Unknown
I think everyone always wants capital and they always want to blame the local investor community. So that's what I'm hearing. Okay. Well, I appreciate that. Going deep on it, I think, you're not supposed to ask investors who their favorite company are is. But I want to know, what do you think is the most promising technology?
00:49:13:09 - 00:49:41:14
Unknown
Technology trend you've seen in the last six months that you're just excited about? Yeah, no. It's interesting. I mean, some of our earlier investments in the whole CO2 to Saff or things that are substitutes, oil projects, those I think are getting traction and I continue to be excited about it. I'd say in terms of the newer things, it really is looking at, how can we, in effect either recycle to create rare earths?
00:49:41:16 - 00:50:06:13
Unknown
Or use interesting processes to create other materials like we have a company that's focused. Yeah. You mentioned on peroxide. And we like platforms. They're looking at other potential, you know, products as well. So those to me are very exciting. Good. Is there a like a book or a resource you recommend every founder, reads or listens to?
00:50:06:15 - 00:50:27:17
Unknown
Probably should be. Yeah, I do a lot of reading and, but I can't think of one offhand, but I. Yeah, would say is the best one I'd recommend. Yeah. And then, go ahead. I was going to say one, though I do think it's worth reading just because the lessons is it's probably one of the original biographies of Elon Musk.
00:50:27:19 - 00:50:52:18
Unknown
Yeah. The chapters on SpaceX to me were most compelling because he almost failed multiple times. Yeah. And it just just intriguing. You know how much he did to learn about it to get things rolling. And just again the persistence to stick with it and make it happen. Yeah I I was hearing you say, you know, the the leadership teams that are resilient are a really big driver for you.
00:50:52:18 - 00:51:14:22
Unknown
And I think the the thing people forget about with Elon Musk is how much he doubles down on himself and how much he's willing to put that bet. And and that makes him really need to succeed. And it's, it's a lesson in resilience, for sure. So I would definitely, concur with that. If you are not being and doing investing, what what else would you be doing today?
00:51:15:00 - 00:51:38:09
Unknown
That's a good question. I mean, the things that I'm also passionate about are really wildlife conservation. So I've been involved in very fortunate involved a number of different organizations, including like the Jane Goodall Institute, who just was a real yeah hero mine and get to know her quite well, which is great. I've been fortunate I get to go on many, many different trips researching wildlife.
00:51:38:11 - 00:51:59:12
Unknown
So my, my daughter's a conservation biologist, so I went with her on some of her research in Kenya and Tanzania while she was getting her PhD. And so those things I still make time for them, but if I wasn't doing this, I'd probably even expand the time. Yeah, there. Well, what's, What where is the last place you went?
00:51:59:13 - 00:52:34:05
Unknown
For conservation travel? I was was in Botswana last October. November? I think it was. But I, for example, I for a while I was on the board of bat Conservation International. And here in Texas, they have a cave called Bracken Cave. Which has over 15 million. Yeah. Mexican free tailed bats that raise their young, and it's just it should be one of the wonders of the world to go in the evening, in the summer, to watch the bats come out of the cave.
00:52:34:07 - 00:52:52:18
Unknown
So there's just so many different things that I continued doing in that sector that it's it's tough to sort of. Yeah, just pick 1 or 2. Yeah. No, I understand. No. Well, thanks for coming on the show and sharing your passion with us. And, we look forward to, what you guys accomplish in the next few years.
00:52:52:23 - 00:52:54:02
Unknown
Right. Thanks for having me.